Should You Have a Medicaid Asset Protection Trust?

Aug 17, 2022

Long-term care is expensive and a substantial burden on many families. As a result, it is good to start thinking about how you will pay for care well before you need it. Nursing homes can easily run $100,000+ per year and hiring home care aides can be even more costly. Unfortunately, these expenses are not covered by Medicare or private health insurance, so families are left to try to pay for care out-of-pocket unless they can qualify for Medicaid. Most middle-class and wealthier individuals believe they cannot get Medicaid until they virtually bankrupt themselves. However, with the right Medicaid planning, they may be able to get Medicaid while preserving some assets and income. A Medicaid Asset Protection Trust is one way to accomplish this goal.

What Is a Medicaid Asset Protection Trust?

A Medicaid Asset Protection Trust is a trust set up by the person seeking to qualify for Medicaid. Some or all of the person’s assets are then transferred into the trust so they do not have to be spent for care before applying for Medicaid.

What Are the Requirements for a Medicaid Asset Protection Trust?

Creating a trust is a legal way to protect assets from the government, provided it meets certain requirements as follows:

  1. The trust must be irrevocable. If the grantor (the person seeking Medicaid who created the trust) can revoke the trust, then it is not a valid trust for Medicaid purposes because the trust assets are still owned and controlled by the grantor. 
  2. The grantor cannot be the trustee of the trust. Typically, a trusted family member or other person is named trustee. 
  3. The grantor cannot be the principal beneficiary of the trust. However, it is permissible for the grantor to be an income beneficiary of the trust. For example, if the trust owns rental property, the grantor can be the beneficiary of the income from the property but not the property itself.

Can You Retain Access to the Assets in the Medicaid Asset Protection Trust?

Since the trust is irrevocable and you cannot be the trustee, you cannot dissolve the trust or sell or take assets from the trust. However, there are some loopholes. 

The trust can be designed to allow you to retain certain rights. For example, you may be able to take actions such as:

  1. Retain a life estate. If you put your home in a trust, you can retain the right to live in the house for the remainder of your life. This prevents anyone from forcing you out of your home.
  2. Remove or add trustees. You can effectively pick trustees who will honor your requests with respect to the assets and income in the trust. 
  3. Remove or add beneficiaries. You choose who will get your assets. As with the right to replace trustees, being able to change beneficiaries gives you a lot of power over how the trust is administered.

Should You Put All Your Assets into the Medicaid Asset Protection Trust?

While you can put certain safeguards in place to keep trustees and beneficiaries from misusing trust assets, you still do not want to be completely at the mercy of others. The best thing to do is to start with transferring certain assets only, especially if you are still healthy. For instance, your home can be transferred into the trust with a life estate to you. You may also have some other savings that you do not rely on now for your support and you do not anticipate needing to draw on them for your care that you can move into the trust. As you age or if you develop health conditions that make it likely you will need long-term care within a few years, then you may want to transfer additional assets into the trust. You have to weigh your desire and need to have access to your money against the potential loss of those funds to qualify for Medicaid.

When Should You Create the Medicaid Asset Protection Trust?

It is best to engage in Medicaid planning well before you need to apply for Medicaid. That is because Medicaid has a lookback period. If you transfer assets into the trust within the lookback period, Medicaid will deem that those assets are still yours and you will be disqualified from Medicaid for a certain period of time. The lookback period varies depending on whether you are seeking nursing home or home care coverage. We will discuss the lookback period further in a future blog post.

If you are concerned about paying for long-term care and have assets you want to protect, contact us to discuss your options. We have extensive experience with estate planning and helping families obtain Medicaid coverage.